New MLR Final Rule for Community Rated Plans Under FEHBP

Apr.03.2012

On Monday, April 2, 2012, the U.S. Office of Personnel Management ("OMB") published in the Federal Register final regulations which amend existing Federal Employees Health Benefits ("FEHB") and the Federal Employees Health Benefits Acquisition Regulation ("FEHBAR") provisions related to premium rate-setting methods for community rated plans. With "minor changes" to a June 29, 2011 interim final rule, see 76 Fed. Reg. 38282, the new regulations replace the prior similarly sized subscriber group ("SSSG") rate-setting method with a medical loss ratio ("MLR") calculation.

The updated MLR requirements impose obligations on all community-rated plans, except those subject to "traditional" community rating requirements under state law. The revised MLR regulations, like those embodied in the Patient Protection and Affordable Care Act ("PPACA"), are designed to offer "a more modern and transparent calculation while still ensuring that the FEHB Program is receiving a fair rate." In addition, OPM anticipates that the MLR requirement "will result in a more streamlined process for plans and increased competition and plan choice for enrollees."

The final regulations make four changes to the prior interim final rules:

In response to public comments, the final rules do not contain any provision barring consideration of a prior year's MLR in determining that of the current plan year. According to OPM, this change is geared toward providing OPM "flexibility to determine a fair and accurate MLR for each plan in each year."

The new rules provide a deadline for publication of the FEHPleB-specific MLR requirement. Specifically, the regulations require promulgation of the applicable FEHB-specific MLR threshold 8 months prior for plan year 2013, and twelve calendar months in advance for plan years 2014 and beyond. See 48 C.F.R. § 1602.170-14(b).

The new regulations include technical changes to certification requirements, applicable to carriers using the MLR methodology, based on changes in timing. Under the new provisions, carriers using the MLR methodology must first submit a "Certificate of Accurate Cost or Pricing Data or Community-Rated Carriers," followed by later submission of a "Certificate of Accurate MLR Calculation." See 48 C.F.R. § 1515,406-2(b).

The new regulations specifically provide that OPM will issue a separate credibility adjustment, apart from that defined by the U.S. Department of Health & Human Services ("HHS"). See 48 C.F.R. § 1602.170-14(c).

CMS declined to permit plans making MLR rebates under the PPACA health reform law to include any rebate required under that law for the FEHBP to be included as a reduction in premium under the FEHBP-specific MLR calculation. It also declined to permit plans to determine FEHBP MLR results based on a composite of multiple years' experience. OPM will expect plans to follow CMS guidelines for determining how to treat expenditures under the FEHBP MLR rule.